Answer two of the following three questions: Question I: A. List the reasons for trade as discussed in class and the textbook. - Countries trade because they do not have enough resources to satisfy their needs. - Trade occurs because a country have a comparative advantage over a product or service by making the country more efficiently at the lowest opportunity cost. - Countries trade because when they produce a surplus, they can trade it for another resource they need. - Certain good and services are imported to a country because they might be cheaper and sometimes with better quality than producing them in the country. - Trade occurs because sometimes there is no other alternatives, so trade becomes essential. - Trade helps lower the …show more content…
Moral Hazard and Financial Sector Regulation 2. Exchange Rate Policy 3. Capital Controls. D. What are the pros and cons of a single currency? Pros of a single currency: eliminates price fluctuations caused by changes in the exchange rate, business reflects temporary shifts in currency values, the elimination of misleading prices, the increase of political between countries, a single currency eliminate the problems that are causes by exchange rate, and in a developing country, the adoption of a common currency may give them credibility. Cons of a single currency; there is only one money supply and one rate of growth of the money supply, different policy effects, external economic shocks, and short term transition costs. E. International institutions, like the IMF, impose conditions in exchange for support/help with addressing the impacts of a financial crisis in a country. What are the typical conditions imposed on a country by the IMF? What are the arguments for and against those conditions? How may the concept of Pareto optimality be used in favor for conditionality? The typical conditions imposed on a country by the IMF are; monetary and fiscal policies, exchange rate policies, and structural policies affecting the financial sector, international trade and public
It is important, because without trade your economy can not grow. With trade among people, counties, and states it always for more wealth to be produced. Civilizations thrive off of one
Trade is the most common form of transferring ownership of a product. The concepts are very simple, I give you something (a good or service) and you give me something (a good or service) in return, everyone is happy. However, trade is not limited to two individuals. There are trades that happen outside national borders and we refer to that as international trading. Before a country does international trading, they do research to understand the opportunity costs and marginal costs of their production versus another countries production. Doing this we can increase profit, decrease costs and improve overall trade efficiency. Currently, there are negotiations going on between 11 countries about making a trade agreement called the Trans-Pacific
In this chapter of Naked Economics, by Charles Wheelan, he describes many aspects of trade. It begins by showing the capabilities of trade and how it affects everyone as a whole. It makes it so that everyone is better off than normal. To put it into perspective, he put the image in your head of how hard your life would be without trade, you would have to make your own clothes, find a way to get/make your own food, make your own car, etc... After showing some of the advantages to trade, he applies it to a global persona and begins to introduce his opinion on how global trade (globalization) makes us richer. One of the key explanations of this point is that trade frees up time in our busy schedule, therefore allowing us to use that freed up
Trade, of course, is only part of a larger network of relationships between our two countries. This network evolves in response to many complex influences, and exporters need to consider how our two countries' ever-expanding, ever-changing relationships will affect their activities. To take just a few examples:
The European Union today is a political and economic entity that controls in a single market located mostly in Europe exploiting Euro as a single currency uniting the vast majority of its members. The market that all European Union members share provides free trade of goods and services as well as a common external tariff. One might argue that the European Union would not perceptible its current influence had it not been for the introduction of the Euro. Speaking of the benefits of the Euro, one can name the elimination of exchange rate problems, creation of a single financial market, providing price stability, low interest rates as well as being a political symbol of unity and commitment to the Union. Today, Euro is the second reserve currency in the entire world - a fact that clearly speaks for itself of its value in the global market.
Many people would agree that Europe is a continent in which regions identify with each other even if they are not part of the same country. For that reason, as well as others, in 1957 the Treaty of Rome "declared a common European market as a European objective with the aim of increasing economic prosperity and contributing to 'an ever closer union among the peoples of Europe'" (www.euro.ecb.int). Later, in 1986 and then in 1992, the Single European Act and the Treaty of European Union tried to build on the previous treaty to create a system in Europe in which one currency could eventually be used all over the land under the heading of the Economic and Monetary Union. (www.euro.ecb.int) However, the question remains, why would the leaders of various European nations want to create one currency when the rights of national sovereignty have always been an issue for countries all over the world. Why, in 1998 did they create the European Central Bank, and why in "The third stage of EMU... on 1 January 1999, when the exchange rates of the participating currencies were irrevocably set" (www.euro.ecb.int) did eleven, and later twelve, countries link themselves economically in a way that has never been done before?
The contagion of inflation is also one thing to avoid. Our economy could crumble, if the monetary unit is changed. If this happens, the debasement of our currency will spread universally and end in disaster. The world would be living in complete immorality and sin. Government tries to control the economy with price controls, but it in return just tears down our free market system.
Besides that free trade encourages strengthen the development of a country’s institutions, in order to protect the country’s eco...
Krugman defines comparative advantage as “the view that countries trade to take advantage of their differences” (1987, p. 132). Comparative advantage theories assume constant returns to scale and perfect competition. Krugman writes that trade exists when countries differ from one another in goods they have to offer, technology, or factor endowments. Although there are multiple models explaining the cause of trade, each differs as to what factors are included to explain why trade takes place. Economist Ohlin and authors Burenstam-Linder and Vernon began introducing counter-points to comparative advantage as early as the late 1950’s, saying that formal models of comparative advantage did not take into account all factors affecting international trade. International specialization and trade caused by increasing returns, as well as economies of scale and techn...
...bstitute of conventional currency in immediate future because of its flaws. Since virtual currencies are not monitored a number of substitute currencies like MemeCoin, JunkCoin, DogeCoin, Ripple etc. have flooded in the market which makes user confused and also easy availability of such virtual currencies might reduce the value of currencies. Bitcoins are still vulnerable to viruses, hard drive crashes etc. which makes it really dangerous and risky to stock Bitcoins. Also, fluctuations in the value of bitcoins will cause uncertainty in trading using bitcoins or any virtual money as currency. But, in long run if these loopholes and flaws are rectified, virtual currencies like Bitcoins will be much more feasible than using conventional minted currencies because of its advantages like convenience of use as a global currency, security from theft, anonymous trading etc.
instantly with negligible costs for transactions. Cryptocurrencies are becoming widespread as a paper and electronic currency which poses an opportunity to investors who started early. Most of the commonly known problems with cryptocurrencies are the issues of deflation and also wasteful mining that leads inflation. The advantage is that, these problems are not such pervasive especially when the issue of the cryptocurrency economy as a general operation is considered. They only drive their own value by having the reputation of an effective transaction mechanism. This happens in cases that they seem to be overvalued while other cryptocurrencies getting an opportunity to arise. When they arise, they will thus increase the number of cryptocurrencies which will thence cause inflation while posing a limit to wasteful mining.
All nations can get the benefits of free trade by being specialized in producing goods they have a comparative advantage and then trade them with goods produced by other nations in the world. This is evidenced by comparative advantage theory. Trade depends on many factors, country's history, institution, size and. geographical position and many more. Also, the countries put trade barriers for the exchange of their goods and services with other nations in order to protect their own company from foreign competition, or to protect consumers from undesirable products, or sometimes it may be inadvertent.
IMF Staff Position Note. (2009, March 6). The Case for Global Fiscal Stimulus. Retrieved from http://www.imf.org/external/pubs/ft/spn/2009/spn0903.pdf
(Yourdictionary, n.d.). You can also export and import products from other countries. Culture products can be send to other countries because people who are living in another country but they are not in their own country, they will able to access to those products. This can connect to immigrants coming to another country for safety because maybe in their country there is war. Also people go to other countries to find proper jobs and to educate themselves better in order for them to find high paying job.
Trade creation occurs when low cost producers within free trade area replace high cost domestic producers. These agreements create more opportunities for countries to trade with one another by removing the trade barriers and investment. Trade creation allows member countries for a wider selection of goods and services not previously available. They can acquire goods and services at a lower cost after trade barriers due to lowered tariffs or removal of tariffs which will encourage more trade between member countries the balance of money spend from cheaper goods and services, can be used to buy more products and services. Regional economic integration significantly contributes to the relatively high growth rates in the nation. By removing trade barriers between members countries the factor of production can be move